As you can see, as the box goes near the light source, the box is slowly illuminated with a glow coming from the neon green light. Take note that the glow should only fall on objects near it, and nowhere else. The background should have no glow as well.

I'm not really sure how I should proceed with this so I am hoping if you guys could give me a basic idea on how to do it.

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Here's the idea I've come up with but I'm not sure how to do it:

I'm gonna make use of a green gradient that will serve as the glowing light from the light source.

The part of the gradient where it overlaps with the box object will be the only one that will be shown. The rest are not displayed on screen.

Any ideas on how to implement this? Or if you have a better method, please share it!

I would try the gradient object. In your example you would place a gradient on top of all other objects (most likely its own seperate layer). Make it cover the wished light's area. Set the color close to the light source to some opacity and the second color to 0% opacity.

I think I forgot to mention that the background should not have a glow. If I understand your suggestion correctly, I believe that it isn't the solution I'm looking for. Still I'll give it a try I might find or learn something new.

HI tulamide. You're Gradient effects add on was really cool. However, seeing that the gradient only stays on the object at all times, I'm not sure if it was the solution I was looking for (Unless that is I missed something).

I have updated my first post with an idea on how I could implement it. Maybe you have a suggestion on how to do it?

There's some plugin lying around that shviller made, which if i recall properly draws an image only over opaque areas in a base texture when applied to the object you would use as a "light" and used in conjunction with "force own texture" on the layer the light and object are on. It's called "draw over real"

But I really like PixelRebirth's solution. Elegant and not too processor expensive.

EDIT: Namre, I think you didn't use it to your advantage. Don't add the effect to one of the objects, but to the layer that contains the objects. Of course, there is still missing a "center"- option, to define the position of the light source, but that's no big deal to implement. However, I repeat that Pixel's solution is probably the best.